|
|
College Education Planning
529 College Funding
Educational IRA (Coverdell Education Savings
Account)
Prepaid Tuition Plans
Roth IRA
529
College Funding
Deciding how to provide for your children's college costs are daunting.
One groundbreaking newer program which offers incredible tax breaks is the
529 Plan.
The major
benefits of this program?
 | $55,000 to $110,000 first year* (per
child) investment
without incurring gift tax |
| $250,000 contribution limit |
| Account can be opened with $250 per fund
($1,000 for the Cash Management Trust of America) |
| Tax-deferred earnings |
| Tax-free withdrawal when used for
qualified expenses |
| Education selection anywhere in the U.S.
and some foreign universities as well |
| Plans can be "switched" every 12 months |
| If desired, account balance can revert
back to account owner (10% penalty) |
| Beneficiary changes allowed |
| Professionally managed diversified funds |
| No income cap on contributors |
| Simple account opening process
|
529 Plans
Individual states sponsor 529 plans, which are administered by an
investment company. Almost all of the plans are available to residents of
other states. And you can use the money to pay for a public or private
college in any state. Selected foreign universities are included.
Each state sets contribution limits and guidelines that the plan must
follow. These programs receive ratings from Morningstar and other rating
analysts.
Contributions: Amount varies from state to state, but you (and
anyone else, such as a relative) can contribute at least $11,000 per year,
per donor, regardless of your income.
Options: Each state has its own combination of investments. An
individual account will change over time, becoming more focused on
preserving capital as the child nears college age. Most plans also offer
static all-stock, all-bond, and mixed stock-and-bond options.
Taxes: Under the new tax law, withdrawals for acceptable
education expenses are tax-free.
Control: Your control over the investments consists mainly of
selecting the plan and determining how much you'll contribute. You also
control how the money will be used.
Uses: There are penalties for using the money for anything but
education expenses. Money left in an account can be transferred to a
relative.
Possible Plus: 16 states give residents a tax deduction on
529 contributions and most exempt the earnings on withdrawals.
Back to Top
Click here to request
additional information
| College |
15 Year Old |
11 Year Old |
7 Year Old |
1 Year Old |
| CSUF |
$9,321 |
$11,330 |
$13,776 |
$18,460 |
| ITT |
$45,850 |
$53,734 |
$67,746 |
$90,788 |
| Chapman |
$96,847 |
$117,714 |
$143,084 |
$191,748 |
| UCLA |
$99,702 |
$121,188 |
$147,302 |
$197,399 |
| USC |
$141,462 |
$171,948 |
$209,004 |
$280,085 |
| Stanford |
$154,479 |
$187,759 |
$228,222 |
$305,840 |
|
Costs for College
Education of 4 years at 5% inflation-California |
Educational IRA
Educational IRAs , renamed in 2001 to
Coverdell Education Savings Accounts have increased allowable yearly
contribution from $500 to $2,000 but do have income restrictions.
Contributions: Up to $2,000 per
year, possibly less depending on parents' income.
Eligibility limits (2002) $95,000-$110,000 single taxpayer
$190,000-$220,000 married taxpayers ($150K-$160K)
*Child must be under 18 or special needs: Maximum is
$2000 per child, not per contributor.
Options: Any mutual fund that
offers IRA accounts. (Check with the fund company.)
Taxes: Withdrawals for acceptable education expenses are
tax-free.
Control: You choose how the money is invested. The recipient
(the child going to college) controls how the money is spent, but can only
use it for education. Accounts are owned by the child, not the parent.
Uses: There are penalties for using the money for anything but
education expenses. This money can also be used for K thru secondary (high
school) education. Money left in an account can be transferred to a
relative.
Lowdown: A good choice for anyone who qualifies.
Back to Top
Prepaid Tuition Plans
You can opt to pay for your child's college tuition by
prepaying the tuition at today's costs.
This program is restricted to the schools offering the plans and the
specific institution.
Basically, you invest in the school's and your
investment buys a certain number of tuition credits at today's costs.
When your child goes to that school
he or she will have the agreed upon tuition and mandatory fees paid for.
Eligibility: You or your
child must be a resident of that state at the time you enroll in the
contract.
Taxes: For gift tax
purposes, the Prepaid plans are treated similar to the 529 plan. Gifts of
$55,000 in one year will be allowed (averaged over five years) without
incurrence of gift tax. Check with your tax advisor on state tax
implications.
Limitations: Changes to
another school or out of state transfer MAY or be allowed, but at a
much-reduced benefit. Plan is for tuition only, not room and board, books,
computers or other costs which may be a significant part of education
expenses.
Investment grows only at the rate at which your school's tuition costs
increase. This type of investment is advantageous only when the tuition
costs of the college you chose rise more than the annual rate of return
you might be earning in other investment vehicles.
Back to Top
Roth Ira
A Roth IRA will allow you to save more money than a
Educational IRA, but with contributions that you have already paid tax on.
Since Roth IRAs are considered retirement saving vehicles, there are free
from tax as long as the fund has been in place for five years and
earnings' withdrawal is not made before the age of 59 1/2.
Contributions: The amount increases from 2002 at $3,000 thru 2008
to $5,000.
Original contributions can be withdrawn (but not the earnings) at any time
for any reason with no penalty.
Taxes: Growth is
tax-deferred. Withdrawals are tax free
if you wait until age 591/2.
Limitations: Income cap
Adjusted Gross Income for single filers is $95,000. Joint filers income
cap is $150,000.
Plus: You can fund both a
Roth IRA in your name and a 529 plan for your child in the same year.
Also, since the Roth IRA is in your name, it will not affect your child's
financial aid qualification.
Contact our office today
|
|
